Telekom Slovenije privatisation hangs in the balance

By bne IntelliNews June 15, 2015

Iskra Pavlova -


The privatisation of Telekom Slovenije is meant to be in its final stages, but it is still not clear whether the company will actually be sold to the sole bidder in the tender, UK-based equity fund Cinven.

The negotiations between the two parties are reportedly still ongoing after the Slovenian Sovereign Holding (SDH), which is in charge of the privatisation, failed to adopt a conclusive decision on Cinven’s improved offer on June 10, saying the bidder had made last-minute changes to the bid which it cannot accept.

As a result, the ball has been thrown into Cinven’s court, since even though SDH rejected the last-minute changes, it said it is ready to sign the deal under the terms offered in May when the UK fund raised the bidding price.

According to media reports, SDH now expects the final outcome of the negotiations at the beginning of this week as Cinven went back to talk to its financiers to discuss its plans to sell €1bn worth of bonds to finance the acquisition.

The details of Cinven’s bid have not been officially revealed yet. The company said the last-minute changes had to be made after it recently learnt about the delays in the regulatory approval for other telecom sales: Telekom Slovenije’s takeover of local firm Debitel Telekomunikacije, and the agreed merger of the Macedonian units of Telekom Slovenije and Telekom Austria.

Allegedly, Cinven is mainly concerned about the risk of losing the opportunity to get some €100mn, which would go to Telekom Slovenije if it uses its put option after the merger of its Macedonian unit One with Vip of Telekom Austria. This ingredient of Telekom Slovenije’s potential takeover seems to have a significant weight in Cinven’s bidding price, as well as in winning the final nod of its lenders.

In December, Telekom Slovenije and Telekom Austria signed a deal to merge their Macedonian units, hoping to complete the transaction in the first quarter of 2015. Telekom Austria will hold 55% and have sole control over the new entity, while Telekom Slovenije will control 45%. Under the deal, Telekom Slovenije has call and put options for its exit from the joint venture within three years.  

The Slovenian company has reportedly recently urged the Macedonian competition watchdog to quicken the approval procedure for the merger, but the regulator says the deadline for taking a decision is July 9.

In the meantime, as the end of the telecom’s sales saga starts looming in Ljubljana, anti-privatisation demonstrators took to the streets on June 11 to show their disagreement with the whole privatisation programme of the government, which includes the sale of 15 key companies – four of them already in private hands.

Some 2,000 protestors called on the government of Prime Minister Miro Cerar to stop the sale of state assets, chanting that this is against the interests of the citizens and the country.

The state still controls a large part of the economy as Slovenia and has been reluctant to sell its companies, believing that economic independence is the main pillar of its state sovereignty, only gained in 1991 at the start of  the break-up of former Yugoslavia.

However, the previous government adopted in 2013 the privatisation programme for the sale of 15 companies in a search for fresh funds as Slovenia had to pour €3.2bn, or 10% of GDP, to save its troubled banks and avoid an international bail-out.

Telekom Slovenije is the largest and most valuable on the list of 15 state-controlled firms that Ljubljana plans to sell. Its privatisation has been therefore in the public eye ever since its launch last year. The telecom’s sale is also seen as a major test for the coalition government and its ability to take joint decisions.

Yet, considering its hesitation to approve or not Cinven’s bid, the process so far has only manifested the government’s inability and unwillingness to make important, unpopular moves.

In April, a cabinet crisis was narrowly avoided when junior partner the Social Democrats decided to remain within the ruling coalition following the dismissal of their minister in charge of defence, Janko Veber, accused of wrongdoings related with the telecom’s privatisation.

However, the Social Democrats continue to advocate against the telecom’s privatisation, widening the gap between their coalition partners from the governing Party of Miro Cerar.

Moreover, the uncertainties around Telekom Slovenije’s sale have resulted not only in reducing the popularity of the parties in power but also in a double-digit fall of the company’s share price on the Ljubljana stock exchange.

The woes surrounding the privatisation intensified when in mid-April, SDH announced that the tender attracted only one bid, that of Cinven. The news was disappointing as it was expected that Deutsche Telekom and US-based investment fund Providence would also participate, creating stronger competition and a good basis for negotiations on raising the sales price.

Following the tender outcome announcement, Telekom Slovenije shares plunged 10% in one day from their level of some €130 apiece, and have been on the fall since then on speculation that Cinven’s bid is considerably lower than anticipated.

According to unofficial information, Cinven’s initial bid submitted in April offered €110mn per Telekom Slovenije share, which was considerably below the anticipated €180 and lower than the market price of €130 per share at the time. After public and political opposition to the sale of one of the country’s top companies, especially at such a discount, Cinven reportedly improved its bid to €130 in May.

Some local analysts warn that a possible failure of the telecom’s sale, coupled with the potential cost Slovenia has to suffer from a possible Greek exit from the eurozone, might be a deadly combination for the country’s public finances, which will report a €1.4bn budget deficit in 2015.

Slovenia hoped to collect some €1.6bn from the sale of 73% in the telecom but according to earlier media reports, Cinven’s €130/share bid values the majority stake at €615mn.

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